CFTC Grants Exemption from CPO/CTA Registration

Steven Lofchie Commentary by Steven Lofchie

The CFTC granted relief from registration as a commodity pool operator ("CPO") and commodity trading advisor ("CTA") to the manager of an entity that entered into over-the-counter ("OTC") swaps in order to hedge the entity's price exposure to oil and gas interests.

According to CFTC Letter 17-48, when the entity acquired oil and gas interests, the manager would hedge the entity's price exposure with OTC swaps. While the CFTC Letter noted that the entity's use of swaps may bring it within the definition of a "commodity pool," the Letter granted CPO and CTA registration relief to the manager subject to various conditions in order to ensure that it used swaps only to hedge the entity's price exposure arising from ownership of physical oil and gas interests.

Commentary

The facts in the Letter are quite sparse, which makes it difficult to understand why relief was necessary. First, it is not clear from the Letter that the entity entering into swaps was an investment vehicle and, thus, why it would be considered a commodity pool as opposed to an operating company. Second, even if the entity was a fund, the Letter does not address why the vehicle could not rely on an existing registration exemption under the CFTC Rules, for example, the limited trading exemption in CFTC Rule 4.13(a)(3). It is thus difficult to see how the Letter fits into the broader regulatory framework for CPOs.

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